For many of us, information pills January 1st is all about turning over a new leaf and making life-affirming promises that usually involve self-improvement of some description.
Well, you can do the same on July 1st for your finances. The beginning of a new financial year can be the catalyst for introducing some positive change to how you administer your finances and the very critical first step in the process is to record your expenditure against your income, or draft up a budget. Why? So that you can plan how you will spend less than you will earn over the next twelve months. Money may not be the sole motivating factor in your life, but the ability to easily reference how and where your money is being spent brings with it several benefits:
1)Clarity: Being able to clearly see a detailed snapshot of your finances breaks down the vague notion of ‘general expenditure’ into actual costs attached to the specific items and services that help you and your home function day-to-day.
2) Knowledge = Control = Security: Simply knowing your financial circumstances is the beginning of establishing a sense of control of your finances and there’s a certain security that comes with being in control. By tracking your spending, you have the ability to diagnose how your household is performing financially, and specifically where changes or improvements can be made. Your first budget may even reveal a pattern of expenditure that is unsustainable, but at least you now have this detailed knowledge as a basis on which to act over the next financial year.
3) Planning: Tracking your spending gives you the ability to plan ahead for major household bills that are scheduled at regular intervals in the financial year. For wage/salary earners, it is useful to divide up these bills to coincide with weekly, fortnightly or monthly pay schedules for an accurate illustration of household expenses against income, but the reality of monthly, quarterly, half yearly and annual billing cycles means that it is important to plan ahead for actual bill payment due dates. Your budget is your plan. It is the ultimate tool that gives you the ability to plan ahead so that you can comfortably deal with the ebb and flow of household expenses as they occur.
4) Forecasting: The prospect of additional expenses will affect your finances, but a budget will allow you to see exactly how and when these effects will take shape. If an additional expense is unavoidable, a forecast enables you to choose to cut back expenditure in other areas to accommodate if necessary. Or perhaps you’re unsure how much additional pressure regular repayments for a new appliance, vehicle, or investment property will put on your finances. The ability to forecast using your budget empowers you to make the best decision possible for your circumstances.
5) Changes: A budget not only gives you an insight into whether changes to your spending are required, but exactly what flow-on effects those changes will have on your finances, to the very last cent. Significant savings can sometimes be discovered by adjusting your spending in the most unexpected corners of your budget.
6) Savings: The other projection your budget can make is how much money you haven’t spent over the financial year because of course, the ultimate goal of a budget is to plan how you will spend less than you earn. This is the very beginning of financial discipline and once budgeting becomes part of your routine, sticking to your budget and even outperforming your forecasts so that your savings grow is a challenge that can be seriously rewarding.
7) Trends: As the financial year progresses, you can replace your projected costs in your budget with actual costs. If your income changes at all, this will also be adjusted in your budget. By June 30th, you will have a full year of financial data that will be the basis of your projections for the next financial year and within purchase klonopin online that, you will be able to identify trends that will allow you to better prepare yourself for the next twelve months. Based on the data, you can easily identify which periods of the year are the most expensive and alternatively, the months when you can really add to your savings. After you’ve replaced your projected costs with actuals at end of your second year of budgeting, you will be able to compare year-to-year trends and accurately gauge whether or not your financial circumstances are improving.
Budgeting Tips & Resources
Budgeting has nothing to do with how much or how little you earn and everything to do with mapping out how to spend less than you earn, irrespective of income. Like most undertakings in life, a clear understanding of your current status gives you the knowledge to make any adjustments necessary to either turn your finances around and make them viable, or even better, to establish and grow your savings. Here are some fundamentals to successful budgeting.
Your End Game: Your initial budget may reveal that no changes to your spending patterns need to be made, so why go to the trouble? For some, simply having the knowledge of where their income is being spent is enough incentive to maintain a budget, but one motivator common to all is a goal. What is your ultimate financial goal? It could be a deposit for a first home, overseas travel, a holiday home or simply a target age at which to pay out your mortgage. A financial goal is a tangible reason to map out and stick to a budget.
Budgeting Tools: A pen, paper and calculator are a great way to start the budgeting process, especially when establishing weekly, monthly and annual expenditure. This is a good static record of your financials at one moment in time, but the ability to make your budget an organic document in which you can adjust projected expenses into actuals as they occur and also to forecast the effects of additional expenses, an electronic budget is the way to go. If you’re handy with spreadsheet software like Microsoft Excel, you can tailor a budget to your exact requirements, but there are several easy to use budgeting tools available online such as our very own budget planner:
or the Australian Securities and Investments Commission’s version:
You can also use either in conjunction with a mobile phone app that allows you to record your expenditure as you go:
Accuracy: When inputting your data, accuracy is absolutely critical in achieving the most precise snapshot of your finances. For instance, make sure you record your take home pay, not your gross income. Don’t forget those irregular bills either – vehicle registration, local government rates etc. And make adjustments as they occur, especially when actual expenses differ significantly from your projections.
Scheduled bill payments: Many service providers, utilities and credit institutions offer the option of scheduled bill payments on a day you nominate and some cases, ‘bill smoothing’ or the averaging of seasonal consumption (eg gas) over a year so that you are billed the same amount monthly. Combine this flexibility with your bank account’s scheduled electronic transfer facility to program your regular bill payments within a day or two of your wage being paid. This will keep your budget outlook realistic and of course, stay up to date with your bills.
Set sensible targets and surround yourself with support: If your budget requires you change to your spending habits, set yourself incremental targets each month and reward yourself for meeting them. Setting and then failing to meet unrealistic goals could jeopardise your motivation to persist with tracking your spending and complying with your budget. Also, it’s easier to make changes to your spending behaviour when you have someone in your corner. Whether it’s family, your spouse or a close friend, it’s a good idea to have someone encouraging you in your mission to budget successfully and achieve your goals.